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LBO Modeling Exam From Wall Street (Version 1& 2) Newest
2026/2027 Exam Complete Questions And Correct Detailed
Answers (Verified Answers) |Already Graded A+||Just Out!!!
How do you project the financial statements and determine
how much debt the company can pay off each year? - ANSWER-
Assume revenue growth rate, make key expenses a % of rev,
and then tie the BS and CFS items to rev and expenses on the IS
- and to historical trends
to project the cash flow available to repay debt each year, you
take the CFO and subtract CapEx
Just as in DCF, assume that other items in its CFI and CFF are
non-recurring and therefore do not impact future cash flows
This calculation only determines how much in debt principal the
company could potentially pay - interest expense has already
been factored in on the IS and its impact tis already reflected in
the CFO #
Is it really accurate to use Levered Free Cash Flow to determine
how much debt can be repaid? Can't you reduce CapEx
spending after a leveraged buyout? - ANSWER-First off, this
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metric of CFO - CapEx is not exactly levered FCF (normally you
also subtract mandatory debt repayments)
Assuming that CapEx can be reduced post LBO is dangerous bc
CapEx drives revenue growth
What if the company has existing debt? How does that affect
the projections? - ANSWER-The PE firm would either assume
the debt or refinance the debt. Refinancing results in debt being
a non factor bc it goes away. Assuming the debt would require
you to factor in interest and principal repayments on that debt
over future years.
normally, you do this by assuming that existing debt principal is
paid off first after you've calculated CFO minus CapEx. Then,
you can use any remaining cash flow after that to pay off debt
principal for new debt raised in an LBO
What's the proper repayment order if there are multiple
tranches of debt? - ANSWER-Assume existing debt on the BS is
paid off first.
,3|Page
After that, depends on seniority of debt and whether or not the
debt can even be repaid early. for example, you cannot repay
debt principal early on high yield debt
If you have a revolver, and then multiple loan terms, normally
you will pay the revolver first, followed by the most senior term
loan, and then more junior term loans
in theory you should want to repay the most expensive form of
debt 1st - but this is not always allowed
Do you need to project all 3 statements in an LBO model? Are
there any shortcuts? - ANSWER-Yes, there are shortcuts and you
do not necessarily need to project all 3 statements.
for example, you do not need to create a full BS. You do need
some form of IS, something to track how the Debt balances
change and some type of cash flow statement to show much
cash is available to repay debt
but a full blown BS is not strictly required bc you can make an
assumption for the overall change in operating assets and
liabilities rather than projecting each one separately
, 4|Page
What is meant by a "tax shield" in an LBO? - ANSWER-This
means that the interest a firm pays on debt is tax-deductible -
so they save money on taxes and therefore increase their cash
flow as a result of having debt from the LBO.
Note, however, that their cash flow is still lower than it would
be without the debt - saving on taxes helps, but the added
interest expenses still reduces Net Income over what it would
be for a debt-free company.
How do you calculate the internal rate of return (IRR) in an LBO
model and what does it mean? - ANSWER-Make the amount of
equity (cash) that a PE firm contributes in the beginning a
negative, and then making cash flows or dividends to the pe
firm, as well as the net sale proceeds at the end, positives.
and then you apply the IRR function in excel to all the #s,
making sure that you've entered "0" for any periods where
there's no cash received or spent.
think of it like an effective interest rate - if you invested that
cash in the beginning and earned an interest rate of x% on it,
LBO Modeling Exam From Wall Street (Version 1& 2) Newest
2026/2027 Exam Complete Questions And Correct Detailed
Answers (Verified Answers) |Already Graded A+||Just Out!!!
How do you project the financial statements and determine
how much debt the company can pay off each year? - ANSWER-
Assume revenue growth rate, make key expenses a % of rev,
and then tie the BS and CFS items to rev and expenses on the IS
- and to historical trends
to project the cash flow available to repay debt each year, you
take the CFO and subtract CapEx
Just as in DCF, assume that other items in its CFI and CFF are
non-recurring and therefore do not impact future cash flows
This calculation only determines how much in debt principal the
company could potentially pay - interest expense has already
been factored in on the IS and its impact tis already reflected in
the CFO #
Is it really accurate to use Levered Free Cash Flow to determine
how much debt can be repaid? Can't you reduce CapEx
spending after a leveraged buyout? - ANSWER-First off, this
,2|Page
metric of CFO - CapEx is not exactly levered FCF (normally you
also subtract mandatory debt repayments)
Assuming that CapEx can be reduced post LBO is dangerous bc
CapEx drives revenue growth
What if the company has existing debt? How does that affect
the projections? - ANSWER-The PE firm would either assume
the debt or refinance the debt. Refinancing results in debt being
a non factor bc it goes away. Assuming the debt would require
you to factor in interest and principal repayments on that debt
over future years.
normally, you do this by assuming that existing debt principal is
paid off first after you've calculated CFO minus CapEx. Then,
you can use any remaining cash flow after that to pay off debt
principal for new debt raised in an LBO
What's the proper repayment order if there are multiple
tranches of debt? - ANSWER-Assume existing debt on the BS is
paid off first.
,3|Page
After that, depends on seniority of debt and whether or not the
debt can even be repaid early. for example, you cannot repay
debt principal early on high yield debt
If you have a revolver, and then multiple loan terms, normally
you will pay the revolver first, followed by the most senior term
loan, and then more junior term loans
in theory you should want to repay the most expensive form of
debt 1st - but this is not always allowed
Do you need to project all 3 statements in an LBO model? Are
there any shortcuts? - ANSWER-Yes, there are shortcuts and you
do not necessarily need to project all 3 statements.
for example, you do not need to create a full BS. You do need
some form of IS, something to track how the Debt balances
change and some type of cash flow statement to show much
cash is available to repay debt
but a full blown BS is not strictly required bc you can make an
assumption for the overall change in operating assets and
liabilities rather than projecting each one separately
, 4|Page
What is meant by a "tax shield" in an LBO? - ANSWER-This
means that the interest a firm pays on debt is tax-deductible -
so they save money on taxes and therefore increase their cash
flow as a result of having debt from the LBO.
Note, however, that their cash flow is still lower than it would
be without the debt - saving on taxes helps, but the added
interest expenses still reduces Net Income over what it would
be for a debt-free company.
How do you calculate the internal rate of return (IRR) in an LBO
model and what does it mean? - ANSWER-Make the amount of
equity (cash) that a PE firm contributes in the beginning a
negative, and then making cash flows or dividends to the pe
firm, as well as the net sale proceeds at the end, positives.
and then you apply the IRR function in excel to all the #s,
making sure that you've entered "0" for any periods where
there's no cash received or spent.
think of it like an effective interest rate - if you invested that
cash in the beginning and earned an interest rate of x% on it,
